Morning Commentary, Hubris Edition

The foreign policy establishment and intellectual world are much the same. They fully supported intervention in Vietnam, mostly supported intervention in Iraq and fully supported the war in Afghanistan -- until the wars got hard, or embarrassing and difficult to defend in polite company. Then they bailed, desperately trying to cover their tracks along the way, and offering reassuring images of what losing would look like.

I'll plead guilty on Iraq. However, my perspective is the opposite of Kagan's. The problem for intellectuals is not that they lack the persistence to stick with these sorts of wars. It is that they lack the wisdom to avoid them.

Even if one accepts the nationalistic case for war (which many libertarians do not), plain pragmatism would say that you stay out of wars that you can only win by remaking another society. The fact that some intellectuals only appreciate this after the war is underway is a sad commentary on our hubris.

If the FOMC made materially better decisions because of the Fed's role in supervision, there should be instances of informed discussion of the linkages. Anyone making the case for beneficial spillovers should be asked to produce numerous relevant excerpts from that historical resource. I don't think they will be able to do so.

Ben Bernanke thinks that bank supervision goes along with monetary policy, because the functions are linked. Reinhart disagrees. I would say that monetary policy is over-rated and that supervisions and regulation are under-rated in terms of their importance to the economy.* The synergy between the two comes from the fact that people expect the Fed Chairman to be the "maestro" who conducts our economy and keeps everything steady. If you made me the Fed Chairman and gave me that mission, I would want regulatory authority, too. You need all the power you can get.

[*For an illustration of this thought, see James MacGee on why things worked out better in Canada than in the U.S.

The Canada and U.S. housing market comparison suggests that relaxed lending standards likely played a critical role in the U.S. housing bust. Monetary policy was very similar in both countries from 2000 to 2008, but housing prices rose much faster in the U.S. than in Canada. This suggests that some other factor both drove the more rapid appreciation in U.S. prices and set the stage for the housing bust. A likely candidate is cross-country differences in the structure and regulation of subprime lending markets.

But the "maestro" mission is another example of hubris. Instead, to come up with a sensible institutional structure for monetary policy and financial regulation, I think it would help to drop the assumption that there is a single person or agency that can stabilize the whole economy.

The basic assumption that jobs will eventually return when the economy recovers is probably wrong. Some jobs will come back, of course. But the reality that no one wants to talk about is a structural change in the economy that's been going on for years but which the Great Recession has dramatically accelerated.

Thanks to Mark Thoma for the pointer. Reich then goes on to propose massive investments in education in order to enable people to be productive in a changing economy. The intention is fine, but there is a lack of evidence that massive investments in education will produce the desired result. Hubris again.

"[P]eople expect the Fed Chairman to be the "maestro" who conducts our economy and keeps everything steady. If you made me the Fed Chairman and gave me that mission, I would want regulatory authority, too. You need all the power you can get." I prefer Mises' answer to the question what he would do if he were given absolute political power: "I would abdicate."

"[P]eople expect the Fed Chairman to be the "maestro" who conducts our economy and keeps everything steady. If you made me the Fed Chairman and gave me that mission, I would want regulatory authority, too. You need all the power you can get." I prefer Mises' answer to the question what he would do if he were given absolute political power: "I would abdicate." (Perhaps you actually agree: "I think it would help to drop the assumption that there is a single person or agency that can stabilize the whole economy.")

One of the lessons from Vietnam that we failed to learn is to prevent mission creep. In Iraq, the original mission was to topple Saddam Hussein. When that was accomplished and we could pull troops out, Bush decided to expand the mission to creating a democracy like ours in Iraq with all of the same institutions. Mission one was accomplished well. Mission 2 was built on hubris of enormous proportions.

The same thing happened in Afghanistan. Mission one was to depose the Taliban and capture Bin Laden. We succeeded in the first part and failed in the second. But once their, the bureaucrats decided to remake Afghanistan in our image. Again, a decision that requires a huge amount of hubris to even contemplate.

Fundamentalist,
If mission creep typically happens, then it should not be such a surprise. Instead of saying "stop mission creep," we have to go back and ask why the mission tends to creep.

In the case of Iraq, the problem was that once we brought down Saddam, it appeared that some really nasty characters were going to take over. So the mission expanded to "keep Iraq from being taken over by violent Jihadists," and that morphed into "remake Iraq," because you could not fight the unsavory characters without building up segments that could keep order.

So even if you didn't have Bush's dreamy vision of a free and democratic Iraq, a lot of mission creep was going to take place.

With regard to Reich's suggestion, this reminds me of an interesting point in Book 1, in the William Lewis interview. He says, "Uneducated people can be trained on the job to accomplish quite high skill levels and quite high levels of productivity."
(p. 261).

So we could invest in education, and it will keep some people busy, but perhaps it doesn't get these people much closer to the skills that they could learn on the job (once they get one). The trouble is still to discover where the future areas of employment will be.

Jeff Sachs' post epitomizes "whistling past the graveyard". He seems to be saying "Just ignore that mountain of evidence that the 'climate change' experts are corrupted politically and by money and leave them in charge and everything will be OK."
Just like the opponents of Copernicus, Newton, Einstein and Darwin he can't admit that "his" science might be wrong. There IS no luminiferous ether. The earth WASN'T born on a Tuesday morning in 4400 BC. The earth, despite appearances, CAN be proven to be circling ("ellipsing"?) the Sun.
I can't wait to go back and read these idiots in ten years. With an extra coat on.

Arnold, I'm not so sure that mission creep is inevitable without the accompanying hubris. If my memory is correct, General Tommy Franks told his troops that they would be home by Christmas. The leader of the invation was under the impression that he would turn control of Iraq over to the Iraqi military and leave. He claims he was utterly shocked and dumbfounded when Bremer disbanded the Iraqi army without consulting him and against the advice of Garner. Bremer cut Franks' legs off at the knees.

And if my memory is correct, the insurgency didn't begin until Bremer had disbanded the Iraqi army. In addition, Bremer refused to rein in Al Qaeda when it decided to attack the Shia in hopes of sparking a civil war. The Sunnis supported Al Qaeda at the time and Bremer wanted the Sunnis to join his new Iraqi government. When the US Marines were close to crushing the insurgency in Falluja, Bremer made them pull out and let the insurgency live in order to appease the Sunnis.

Franks had the right idea: crush Hussein and get out. Bremer turned a minor war into a total and utter disaster.

[I posted this earlier but it appears to have vanished into the ether]

"But the reality that no one wants to talk about is a structural change in the economy"

Meaning, up until now the 'recalculation story' has not been convenient to the goals of the political class who have wanted to spend billions of dollars on 'stimulus'.

When and if the recalculation story does become aligned with the goals of the political class then it will take center stage. Perhaps Reich is paving that path: using the recalculation story to rationalize a larger transfer to 'education'.

Curt Gardner writes, "The trouble is still to discover where the future areas of employment will be."

Afghanistan angers me because as far as I can see we won the war in a few weeks. We routed the Taiban and seized the capital driving most of out of the country. How can win a war more than that? But no one in power will admit that we already won the war and are now working/fighting to establish a somewhat democratic central Government. An admission that we won the war would at least allow us to have a sensible debate but the politicians want to hang on to the story that we might loose the war because they know the voters will not like a loss.

Although the actual original mission of the war in Iraq was to topple Saddam Hussein, that wasn't how it was sold to the American public. Instead, it was mission creep, and even worse, fraudulent mission creep - allegedly pursuing Al Queada into Iraq, eliminating that country's support of Al Queada, and eliminating "weapons of mass destruction" that Hussein was supposedly about to deploy against the world (although how he would have deployed WMD's against the U.S. or Israel with no long range missile capability was conveniently ignored). Post-invasion review of records and alleged military sites indicated: 1. The WMDs were a mere bluff by Hussein to get the Islamic world to consider him a leader and the rest of the world to consider him someone who had to be negotiated with; 2. there was no support for Al-Quaeda from the Hussein regime - if anything there was outright emnity, as Al-Quaeda is primarily Shiite, as opposed to Hussien's primarily Sunni Baathist party. Investigations have revealed and are revealing the neither the White House nor Downing Street had any concrete evidence supporting an invasion into Iraq, but that the Bush administration and the Blair administration had spun, distorted and suppressed information to justify what was essentially a U.S. pre-emptive offensive war to topple the Hussein government. And we wonder why the Muslim world considers us imperialistic? By Arnold's own observation, we invaded and toppled one of the largest components of the Muslim world because we didn't like the leader and the government, then stuck around to prevent another regime we didn't like from assuming power.

N, I'd have to consult a dictionary, but for me the difference between hubris and chutzpah is that chutzpah is just confidence. Hubris is the believe that we know something or can do something that is impossible. Hubris is close to arrogance, though without the attitude.

I don't think either Afghanistan or Iraq is a matter of mission creep. Both wars were initiated with the intention of reshaping both countries. It was just the case that this mission was much harder than those who started it thought.

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